An aerial view of Slough. It already has 6,000 people on its social housing waiting iist. Photograph: Andrew Holt/Alamy

Portnall Road is what estate agents describe as leafy. Boasting handsome, Victorian terraced houses, it is the sort of place where people aspire to live. A two-bedroom flat is yours for £350,000 (more than double the average national house price), but agents suggest buyers move quickly as properties in this part of west London, bordering Maida Vale, are never on the market long.

This is partly a result of the area's attractiveness, but also the scarcity of properties. Many flats in the street are homes to people on housing benefits.

The road's mix of social and private housing is reflected in the area's ethnic diversity. The sign above the Dorothy Gardner community centre says "welcome" in eight languages. Chi-chi coffee shops rub up against Arabic grocers.

It is these areas that Karen Buck, the local Labour MP, fears will be most affected when the coalition takes a knife to the housing budget, starting with a cap on housing benefit at £250 per week for a one-bedroom property, up to £400 for four bedrooms or more.

London, with its exorbitant housing costs, will be most affected by the reform. According to the government's own figures, some 17,000 people in the capital will lose out, raising questions about whether they can afford to remain in streets such as Portnall Road.

"I don't think most tenants know what is going to happen to them," Buck said. "They will have to be rehoused in communities that may not have the homes for them or the jobs or the school places."

There is dark talk of how the poor will be driven from affluent areas. Labour's Chris Bryant has suggested they will be "sociologically cleansed out of London" while the mayor, Boris Johnson, warned he would resist "any kind of Kosovo-style social cleansing" in the capital.

According to analysis by the mayor's housing experts, "over 9,000 London households may have to leave their current home as a result of the cap".

The analysis concludes: "We estimate that 4,600 of these families [with 14,000 children] would be unable to find anywhere else to live locally and there will be a 50% increase in homelessness acceptances in the first year of the changes – at an estimated annual cost of around £78m."

The figures undermine claims by the prime minister, David Cameron, who said yesterday: "I don't think it will be necessary for anybody to go without a home." Many on the right, however, concede hard choices have to be made, if the housing benefits system, costing the taxpayer £20bn a year, is to be reformed.

"It's got to an absolutely ludicrous situation where we can have anybody walk into Westminster and, providing they are entitled to housing benefit, they can find a lease with a private flat and claim for up to £2,000 a week," said Philippa Roe, a Tory Westminster councillor with responsibility for housing.

Roe points out that, in the private sector, someone would have to earn £300,000 to cover this sort of weekly expenditure.

"Even at the lower levels, say £500 a week, you have to be earning £75k a year, which is more than 96% of the population earn. It's inequitable, a complete disincentive to work and, at a time of economic austerity, economic lunacy."

"When Boris thinks a policy is bonkers you really do have to wonder about who thought it up," said Rob Anderson, the Labour leader of Slough borough council. Some 20 miles down the M4 from Maida Vale, Slough has 6,000 people on its social housing waiting list. The borough is a victim of its own success. Its business parks are big employers and workers from eastern Europe have flocked to the town, adding as many as 30,000 people to its official population of 125,000. The influx was in evidence on Friday morning at U Babuni, a Polish one-stop-shop in Slough's huge shopping arcade, where Poles flock to have their hair cut, obtain accountancy advice and buy smoked sausages. The eastern Europeans have provided a hard-working pool of labour, but they have also placed huge pressures on local schools, hospitals and housing. Now, the housing benefit reforms threaten to add to these pressures as some London councils look to procure cheaper accommodation both inside the capital and in nearby places such as Slough.

"We got hit very badly 10 years ago when London boroughs used us to dump their asylum seekers," Anderson said. "We ended up with thousands in the town. When we went to [rent more] houses we found we had been beaten to it by inner London offering hundreds of pounds more for poor accommodation."

Hastings, on the south coast, is also mooted as a future home for London's housing benefit claimants. But their arrival would come at a difficult time. More than 40% of Hasting's workforce is employed in the public sector and fears of redundancies loom large.

"At present, we have more than 2,000 people registered in need of housing," said councillor Trevor Webb. "The vast majority of those will be local to Hastings and typically will be the sons, daughters and other close relatives of existing residents."

In Southend, Essex, similar fears exist. Councillor Anna Waite said she is worried that the cap will cause a repeat of what happened in the first half of the last decade, when London councils block-booked seaside accommodation for refugees and asylum seekers.

"They were shipping people out, giving them a train ticket and sending them here, and they would move in," she said.

The cap, though, may be only the beginning of the problems facing the likes of Slough and Southend.

Next autumn, Local Housing Allowance – the money claimants receive towards the cost of their housing – will be brought into line with the bottom third of private sector rents, rather than the bottom half as is the case now.

It is this change, designed to save some £425m a year, compared with the cap's relatively modest £65m savings that will have a seismic effect on the British urban landscape.

Crisis calculates the average claimant in the UK would lose £9 a week, a relatively modest amount to many. "But if you're on a low wage or reliant on Jobseeker's Allowance, it's a huge amount of money," said Helen Williams, assistant director of the National Housing Federation. "It practically leaves them nothing to live on." Even those living in ostensibly less affluent areas will be affected. Crisis estimates claimants in St Helens will be £15 a week worse off.

"Cuts will be devastating to London but it is vital we don't lose sight of the huge damage that will be done in the rest of the country," said Leslie Morphy, chief executive of Crisis. "The impact is going to be felt from Cornwall to the Highlands – with 937,000 households affected by the first wave of cuts alone."

Ministers insist reforming the way benefits are calculated will force landlords to trim their rents. But a survey carried out by the National Landlords Association, found the vast majority say they will not reduce rents.

There are other reforms further down the line. From 2013, local housing allowance increases will be linked to the consumer price index, rather than increases in local rents, suggesting people living in property "hot-spots" may struggle to keep up with rent inflation.

There are plans to make new tenants pay rent at 80% of market rates. In Westminster this could see new tenants pay double that of existing ones.

Those claiming Jobseeker's Allowance for more than a year will lose 10% of their local housing allowance. At its most extreme, this would mean someone claiming £64.30 in Jobseeker's and £250 in housing benefit per week would end up with £39.30 a week left over.

Experts may disagree over the impact of the cuts, but there is unanimity their effects will be profound. "It comes down to questions of how we use space," said Alex Fenton, research associate at Cambridge University's department of Land Economy. "Do we want to have mixed or financially segregated communities?"

"For the first time in 15 months we've just had to put 10 families in bed and breakfast accommodation because one of our major suppliers is withdrawing," said Lib Peck, a Labour councillor in Lambeth.

The landlord's decision to pull out is a concern: Lambeth has 22,000 people on its waiting list for social housing. "This gives a sense of how fragile the system is," Peck said. "The landlord feels he is not getting enough money even before the cap comes in."

To mitigate the effects of its reforms, the government will increase the budget for discretionary housing payments – an extra pot of money for the most affected councils. It has also pledged to build an extra 150,000 social homes within the next four years. But Shelter claims this is less than a third of what the UK requires.

Now the competition to find cheaper accommodation for claimants is likely to have political consequences. "There will be a second wave of migration out of inner London to places such as Barking, precisely where the BNP first started exploiting people's legitimate frustrations," said Margaret Hodge, the Labour MP for Barking.

Hodge acknowledged blame lay with the previous government for failing to build sufficient social housing (the main reason, according to Crisis, the average private sector rent has risen by 63% since 1997), but expressed fears the coalition's reforms are ill thought out. "There's an argument these [social housing claimants] are all scroungers, but four out of 10 work," Hodge said. "There won't be people to do the jobs. There will be people sleeping rough on the streets, there will be unrest, there will be anger."

Roe dismisses these fears and insists claimants in Westminster will still be housed within Greater London. "Even under the worst scenarios, when we look at the numbers who will have to move, we are still only talking about tens of thousands. The population of Greater London is 6 million. Those tens of thousands will be dispersed across a very large number of different households."

But Hodge invokes a spectre of Westminster past. "Shirley Porter at her very worst exported 1,000 families from Westminster. This is a massive demographic and social upheaval the likes of which have never been seen before."